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Expats Owning and Operating a Business in the United Arab Emirates

Author: Jim Newham
Submitted: January 2015

The United Arab Emirates is one of the most business-friendly countries in the world. Regulation of companies is light and neither corporations nor individuals are liable for direct taxation. Furthermore, there is no sales tax, duties are low and there are no trade barriers. (To read more about tax for expats in the UAE, see Taxation.) Starting a business in the Emirates will also help you to obtain a residence visa for yourself and family members. However, most companies trading in the UAE are required to operate under a joint venture with a local company, which has some influence over them.

If you own or run an existing business, you have the option of either opening a representative office or a branch. In either case, you will need to appoint an Emirati to act as a service agent. With a representative office, you will not be able to conduct business in the UAE, but will have an established presence. With a branch, the service agent can register as a commercial agent and be involved in company affairs, though the extent to which this is possible varies between the different emirates.

For more involvement,  the company can become a local subsidiary. To do so, it must set up a partnership with a UAE company. In all the emirates, you can also become an entity within a free zone, which grants you special tax privileges. Most foreign companies choose to be a limited liability company.

If you want to start your own business in the UAE, the first step is to ensure you have the legal right to live and work in the country. In the UAE, your right to live in the country is tied to the plausibility and attractiveness of your business, so how you present it is exceptionally important.

 

Business Plan

Good presentation of your potential business starts with writing a good business plan before you start trading. Since you will be in a joint venture with a local individual or company, it will be much easier to find the collaboration you need if your business plan is impressive.

When writing your business plan, make sure to research which businesses already exist in your field and determine your potential customers, partners and competition. Your business plan should set out your business objectives, target market, commercial strategies, potential obstacles and financing projections. Once you have completed the plan, it is time to think about what legal structure your business will have.

 

Legal Structure

Another important step is to decide which legal structure is best suited for your business. The legal structure will determine the nature of your legal, financial and tax obligations. The two most common business types in the UAE are the sole proprietorship and limited liability company.

Sole Proprietorship (‘Establishment’)

With a sole proprietorship, also known as an establishment, your trade licence is issued in your own name. However, foreigners are not freely permitted to use this structure; normally it can only be used by professionals, not companies. You will still need to appoint an Emirati service agent; they will help you to obtain the various licences you need.

The advantage of setting up your business as a sole proprietor or self-employed person is that you have full ownership and control over the business, and that all after-tax profits are yours. On the other hand, you are personally liable for all the losses your business makes, and have additional responsibilities, such as keeping business records.

Limited Liability Company

The limited liabilty company is the most common business structure in the UAE, and can  consists of from two to 50 individuals. The liability of each individual is limited to the amount of their stake in the company. As is generally the case, the total amount of foreign ownership of company shares must not exceed 49%. However, profits can be distributed differently from this if all the partnerts agree, and the Emirati partner(s) need not have any involvement with the business.

 Other Structures

Other legal structures in the UAE include business partnerships (which come in general and limited forms) and public joint-stock companies.

 

Setup and Registration

Before you start the setup process, you should hire a good lawyer. They will be able to help you negotiate the tricky waters of registration. A foreign company that is set up in the UAE must be in partnership with an Emirati company that owns at least 51% of the company’s capital. Oil-producing and utility companies are exempt from the capital requirement, as are companies established in one of the free zones.

It is usually easiest to find investment from outside the country. One of the registration requirements is to demonstrate that your company has enough money to invest. This amount will be up to US$50,000, depending on the emirate. Your Emirati partner does not have to contribute anything to the initial investment at all.

You will also need to obtain a trade licence and authorisation from the government ministry that has jurisdiction over the type of business activity you are planning to conduct. There is more information on starting a business in the UAE on this World Bank webpage.

 

Employing Staff

If you want to employ someone – including yourself – to work in your business you will have to register as employer at the local tax office. Online registration is possible. However, in certain cases expat business owners must register by telephone or in person.

As employer, you will have to ensure that your business complies with Emirati labour regulations. You should familiarise yourself with different types of contracts, minimum wage requirements, equal opportunity policies, work permits, insurance payments and recruitment options.

 

Free Zones

There are 21 Free Zones in the various emirates. Unsurprisingly, Dubai has the most, followed by Abu Dhabi. In these areas, foreign entities do not require a local partner. They are allowed full self-ownership, are exempt from import and export tax and can freely repatriate their capital and profits. Furthermore, less documentation is involved in company set-up, and most of it is in English.

 

 

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